BSP powers up small, medium-sized banks with reserve cut

Ian Nicolas Cigaral - Philstar.com
BSP powers up small, medium-sized banks with reserve cut
Bangko Sentral ng Pilipinas Governor Benjamin Diokno
Geremy Pintolo, file

MANILA, Philippines — Thrift, rural and cooperative lenders would be able to set aside around P10 billion more for lending by month’s end after the central bank slashed the amount of cash needed to stay inside their vaults in a bid to support business recovery from the pandemic.

In a statement on Tuesday, the Bangko Sentral ng Pilipinas (BSP) said the agency’s seven-member policymaking Monetary Board would cut the reserve requirements for small and medium-sized lenders by 100 basis points effective July 31.

With the decrease, thrift banks would only be required to keep cash equivalent to 3% of total deposits, while for smaller countryside lenders, the requirement would be lowered to 2%.

“The reduction is expected to increase lending capacity of these banks to support financing requirements of their micro-, small-, and medium- enterprise (MSME) as well as rural community-based clients,” the BSP said.

“It will also help lower intermediation costs and ease financial strain faced by these banks’ customers,” the central bank added.

The Duterte administration has heavily relied on banks to propel a recovery which it said should be undertaken under a whole-of-nation approach. But while observers await a convincing fiscal stimulus to get deployed, the central bank has taken the cudgels for the government by making bank credit cheaper and freeing up more cash so that consumers borrow and invest in economic activities.

Since March, when the coronavirus outbreak spiraled into a pandemic, BSP has cut borrowing costs by 175 basis points to new record lows, attempting to push market rates down and encourage borrowers to secure bank credit and finance consumption, investment as well as expansion or revival of business enterprises.

Lower interest rates were topped up with a 200-bps cut in reserve requirements for big universal and commercial lenders last March, releasing around P200 billion in the financial system. By July 31, small and medium-sized banks will get a smaller cut on required buffer funds, but sufficient enough to increase credit access for people and businesses away from the city.

“Our survey among CTB members affirmed continuous lending by our members to MSMEs and consumers, both new and renewals,” said Suzanne Felix, executive director of Chamber of Thrift Banks (CTB), an industry group.

“They have gone beyond compliance with the law and BSP regulations and implemented various measures to encourage MSME lending and continue to nurture them,” she said in an e-mail.

Latest BSP data showed thrift lenders have extended P460.22 billion in loans in May, down 16.9% year-on-year. Meanwhile, separate data showed outstanding loans granted by rural and cooperative banks inched up 4.2% annually to P104.14 billion as of March.

Even without the latest downward adjustment on reserves, Felix said thrift lenders have been active on extending assistance to their borrowers disadvantaged by the pandemic and lockdowns.

“(Thrift banks) have provided refinancing of loan accounts to their clients whose business has been affected by the pandemic, providing them with various loan payment arrangements via all available channels,” Felix said.

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